The Fund in the North, guest blog by Mark Logan, chief entrepreneurial adviser to the Scottish Government

In theory, if a country wants to produce more large-scale companies, it simply needs to ensure that it is creating plenty of start-ups at the other end of the funnel, and that it provides a supportive environment such that the funnel doesn't narrow too quickly. But, in practice, it's not so simple. Start-ups located in regional ecosystems must cross a funding chasm during their journey to scale, in addition to the usual challenges of scaling. 

For example, in Scotland, early-stage start-ups are relatively well-served by the country's strength in angel syndicates. And scale-ups that have crossed the chasm will attract investor interest regardless of geography. It's when they are between these two stages that regional start-ups have relatively more difficulty in attracting scale-up capital, compared to those in larger start-up ecosystems such as London or Silicon Valley.

VCs tend to cluster within big ecosystems, and it's much easier to visit start-ups near you than it is to make a day trip, or overnight trip, to visit them further afield. This also applies to maintaining relationships after an investment, which, of course, affects the decision to invest in the first place. 

Combined with the relative sparsity of scale-up investment opportunities when compared to a larger-scale start-up ecosystem, scale-up investors consequently spend less time hunting for opportunities in regional ecosystems.  Of course, the flip-side is that, for those that do spend the time, there are exciting investments opportunities available.

Consequently, the Scottish Technology Ecosystem Review, published in August 2020, made a recommendation for a public-private partnership to create a Scale-up Fund, targeted on Scotland. The fund would both directly crowd-in scale-up capital to Scotland, and would also increase the number of scale-ups, which in turn would attract further interest from elsewhere.  

After much hard work, Par Equity, already a pioneering supporter of the Scottish start-up scene, has launched the Northern Scale-up Fund, corner-stoned by the Scottish National Investment Bank. In the prevailing investment climate, the creation of the £100m fund (with a first close of £67m) is a significant achievement. It's also exciting to see Strathclyde University, one of Europe's leading entrepreneurial institutions, participating in the fund.  The launch comes on the back of the British Business Bank's (BBB) recent announcement of the Innovation Fund for Scotland, which provides multiple funding categories, including early-stage scale-up investments of up to £5m. 

Of course, on its own, scale-up capital is not enough to accelerate Scotland's start-up ecosystem to critical mass. But it's a hugely important element in the nation's wider start-up ecosystem strategy, alongside other initiatives such as TechScaler, the Ecosystem Fund and Pathways Fund, Entrepreneurial Campus, and the ongoing partnership/integration programme between Scotland's key ecosystem-support assets, to name just a few. 

Together these and other initiatives constitute a powerful ecosystem accelerant, to the benefit of Scotland's start-ups and scale-ups. In my many years of working in Scotland's start-up sector, I can't recall a time as vibrant, with so much start-up activity, supported by such a rapidly evolving support environment.  The Northern Scale-up Fund announcement is another major step in that development.